The housing market is booming right now. Maybe you tried to get in on it, but were turned down for a loan. Don’t get mad…get educated!

Here’s what might be working against you:

Employment. You need to show evidence of steady employment and income, typically for two years, and there shouldn’t be any indication that your employment is going to go south. If you’re self-employed they’ll want to see good numbers on your last two years of company returns as well.

Credit score. The average score late last year was in the mid-700s for a conventional loan. Rates for FHA and VA loans were lower than that but still pretty steep. If the two of you are trying to qualify—you both need a strong score. Also, even if you’re on a great track again after a bankruptcy or foreclosure, lenders will require a 2-4 year waiting period in the case of bankruptcies and up to 7 years following a foreclosure.

Debt. Lenders follow two rules of thumb when they try to predict if you’ll be able to make your payments. They don’t want to see you spend more than 30% of your gross income on housing costs (e.g., mortgage, taxes, home-owners insurance, etc.) and more than 40% of your gross income on total debt (all of those home-related payments plus credit cards and other loans).

Down payment. Conventional lenders require a 5% down payment; the FHA only asks 3.5%. As you save to reach these levels, remember that there will be other costs you’ll have to pay related to the home purchase—inspection, appraisal, etc.

So, if you were turned down, I recommend you work hard to fix your credit, pay down your debts, and save, save, save!

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